Silver prices fell and superimposed three fees and asset impairment increased, the full-year results are under pressure. The company recently released its 2018 results, KuaiBao, with an annual operating income of 10.513 billion yuan, down 6.98% from the same period last year; net profit from its mother was 138 million yuan, down 45.36% from the same period last year; and basic earnings per share was 0.14 yuan, down 70.21% from the same period last year. The main reasons for the decline in performance are as follows: first, the overall silver price showed a downward trend in 2018, resulting in a decline in gross profit of silver products; second, under the influence of factors such as national macro-control and deleveraging in 2018, the company's financing interest rate rose, interest expenditure increased compared with the same period last year; third, investment in technological research and development increased, and management expenses increased significantly compared with the same period last year. Fourth, the Tangjia Concentrator, a subsidiary of Tibet Jinhe Mining Co., Ltd., has included asset impairment due to policy demolition.
With the continuous development of the whole industry chain, the gradual release of production capacity is expected to continue to improve the level of profitability. According to the announcement, the upstream of the company has acquired two mines, Jinhe and Junlong, Tibet, and currently plans to acquire the largest silver mine in China, and the self-sufficiency rate of silver mine is expected to be further improved. The middle reaches smelting link company is expected to put into production of 2000t/a high purity silver powder project in 2019, and the smelting silver output is expected to further increase. According to our estimation and the data of the World Silver Association, the silver output from 2018 to 2020 is expected to reach 1600 tons, 1900 tons and 2000 tons, ranking first in the world. At the end of 2018, the downstream Deep processing Company signed a cooperation framework agreement with Hunan Guoxin Company, planning to promote the construction of silver paste production lines of 4000t/a high purity silver nitrate, 2000t/a high purity silver powder and 1000t/a, and strengthen the downstream layout. The whole industry chain of the company is gradually improved, and the release of production capacity is expected to further thicken the company's performance.
The risk of corporate debt is gradually falling, and valuations are expected to rise. According to the announcement, since November 2018, in order to break through the financing bottleneck and reduce debt risk, first, the company and its real controllers have signed an integrated service intention agreement with the Hunan Branch of Great Wall Capital Management to provide a package of comprehensive financial services for its ability to restore financing and financing guarantee. The second is to sign strategic cooperation framework agreements with the asset management companies of Hunan Province and Chenzhou to establish long-term cooperation to provide support and cooperation for the company in industrial integration, asset management, debt restructuring and liquidity. At present, the first liquidity support fund of 100 million yuan has been received. Valuations are expected to rise as the risk of corporate debt declines.
Investment advice: buy-An investment rating, 6-month target price 10.91 yuan. At present, there is a gradual trend of global central banks competing for easing. We assume that the silver prices in 2018-2020 are 3.62,4.16,4.78 yuan / g respectively, and the company's EPS is expected to be 0.14,0.50 and 0.67 respectively in 2018-2020. The performance growth is mainly due to the continuous release of smelting capacity and the increase in inventory prices. Considering that the current point company is expected to acquire large mines, silver performance is also more flexible, giving the company a dynamic price-to-earnings ratio of 22x in 2019. The target price for 6 months is 10.91 yuan.
Risk tips: 1) the lower-than-expected global monetary easing led to downside risks in global silver prices; 2) the company's promotion of the 2000t/a high-purity silver expansion project in 2019 was not as expected; 3) the company's asset restructuring and acquisition of Silver Mine was lower than expected; and 4) the debt risk of the company's major shareholders exceeded expectations.